‘Subdued’ services sector suffers steep drop as tax hikes bite
Business activity expansion fell to a five-month low after a “subdued” services sector experienced a dull end to the third quarter.
S&P’s UK Services Purchasing Managers Index Business Activity tumbled to 50.8 in September, falling steeply from the 16-month high of 54.2 secured in August.
“This summer’s acceleration in output growth is now looking like a flash in the pan as elevated political and economic uncertainty has reasserted itself as a constraint on service sector performance,” Tim Moore, economics director at S&P Global Market Intelligence, said.
The PMI cited “sluggish demand” as weighing on growth rates with weak sales pipelines and pressures on margins sharply rising due to staff costs.
Moore said: “Another round of job cuts followed in the wake of the subdued service sector performance during September, which marked 12 months of falling employment.”
Incoming new work edged up slightly during September at a “much slower rate” than August.
Employers have continued to digest the rising costs slapped on businesses in last year’s Autumn Budget, where Reeves hiked employer’s national insurance contribution 1.2 per cent and increased the national minimum wage.
Service sector’s growth plans on hold ahead of Budget
The slowing growth rate, paired with jitters ahead of the Autumn Budget, with a firms putting plans on pause.
“Many survey respondents suggested that corporate clients had deferred spending decisions until after the Autumn Budget, while households were also hesitant about major purchases,” Moore said.
Businesses have been quick to warn Reeves against further tax hikes in the upcoming Budget.
The boss of supermarket giant Tesco – which employs 330,000 people in the UK, said: “In the last Budget, the sector incurred substantial additional operating costs and we’re doing our best to deal with that but enough’s enough”.
Ken Murphy said: “As a food retailer we operate in a very competitive, very tough environment, and I think our one ask is that you don’t make it harder for the industry to deliver great value for customers,” he added.
However, the dim projections for growth and weaker cost pressures have fuelled speculation of another rate reduction by the end of the year.
Moore said: “These signals of softening labour market conditions and easing inflationary pressures are likely to provide support to the more dovish shift in the policy debate at the Bank of England.”